Commission for the protection of competition launches probe into leading ice-cream manufacturer’s unilateral practices for the second time

The Serbian Commission for Protection of Competition (“Commission“) performed a dawn raid on 30 May 2017 on the ice-cream manufacturer Frikom on the allegations of abuse of dominant position on the market for the distribution and sale of ice-cream. Frikom, which has already been in the Commission’s crosshairs before, faces accusations of exclusionary abusive conduct in the form of exclusive dealing and exclusivity rebates for the second time in seven years.

Frikom’s anti-trust record

Frikom, Serbia’s leading ice-cream manufacturer, has since its inception in 1970 become deeply embedded in Serbian culture and lore. Most Serbs have fond memories of a time they used to gobble down Rumenkos, Kapris, or Lenis daily. Heated arguments over which flavor is superior: Leni’s nut-chocolate bonanza, or Kapri’s liquid strawberry jam still rage on to this day. However, those who follow events in the competition law arena will also remember a less sunny side of the ice-cream giant’s history. In 2012, the Commission fined Frikom approx. EUR 3 million for (i) requiring resellers to charge a fixed price on Frikom’s products (resale price maintenance), (ii) imposing exclusive dealing obligations on retailers (directly as well as through an intricate system of exclusivity rebates), and (iii) applying dissimilar conditions to equivalent transactions.

The Commission found at the time that Frikom’s commercial policy during the investigated period (2010-2012) had been characterized by a network of exclusivity in Serbia with the object to foreclose competitors from the ice-cream market. This had been achieved inter alia through a combination of exclusivity agreements and exclusivity rebates which shared a common object and effect: the exclusive sale of Frikom’s products in the customers’ outlets and refrigerators. At the same time, the Commission found that the market share of Frikom had increased steadily during the investigated period at the cost of the market share of its main competitor, Nestle. After an appraisal of the facts and an analysis of the structure of the relevant market, the Commission concluded that there was no alternative, rational explanation for the rise in Frikom’s market share, and the concurrent fall in its competitors’, other than the combination of Frikom’s (then sitting on a comfortable market share of approx. 85%) unilateral exclusionary practices, i.e. resale-rice maintenance, exclusive-dealing obligations, and the application of dissimilar conditions to equivalent transactions.

Interestingly, the Commission went on to assess the effects of the exclusionary practices despite the clear anticompetitive object of Frikom’s behavior. Agrokor, Frikom’s parent company, had prior to the launch of the Commission’s investigation published the following statement on their website: “Agrokor has erected strategic barriers to impede the entry of any further competitors on the Serbian [ice-cream] market”. This should have perhaps been sufficient for the Commission to circumvent a full-blown analysis of the actual effects of Frikom’s unilateral behavior – and indulge only in a more modest analysis of the ability of the conduct at hand to harm competition. Nevertheless, the Commission, in line with its previous case-law on exclusive dealing and exclusivity rebates, decided to discuss how and to what extent Frikom’s conduct had harmed competition.

What to expect from Frikom II

After reading the Commission’s recent decision to initiate proceedings against Frikom, it appears, if the Commission’s allegations are to be trusted, that the Serbian ice-cream giant has not learned its lesson. Frikom is once again accused of imposing exclusivity rebates and exclusivity clauses on its retailers. Competition law practitioners can look forward to some potential clarity in the field of Article 16 of the Competition Act. Namely:

In Frikom I, the Commission did not spell out whether it considers exclusive dealing arrangements and exclusivity rebates to constitute by object or by effect restrictions of competition. The Commission did say that Frikom’s practices had the object of restricting competition insofar as they were part of a self-professed strategy of excluding competitors from the Serbian ice-cream market. Against the background of a glaring admission of intent, it would have been difficult for the Commission to reach a different conclusion. The Commission nevertheless still went on to assess the effect of Frikom’s unilateral practices on competition on the Serbian ice-cream market. It would be, however, interesting to know whether the Commission would have found that Frikom’s practices amounted to restrictions by object had the ice-cream manufacturer not made its intention to foreclose competitors from the market public. Frikom II may give us some insight in this respect.

The distinction between by-object and by-effect restrictions of competition under Article 16 of the Competition Act (abuse of dominance) has important implications for the burden of proof in proceedings before the Commission. If a conduct is considered to constitute an infringement of competition by object, it is the company facing allegations who must furnish proof of the pro-competitive effects of its unilateral conduct (a so-called objective justification). On the other hand, if a unilateral conduct is deemed to infringe competition by effect, it is the Commission who must prove that the practice in question has produced an anticompetitive effect – with the burden of proof thus being reversed. The case law created thus far (which is by no means extensive) shows that the Serbian watchdog tends to analyze the effects of exclusivity and exclusivity rebates in its abuse of dominance investigations. However, this does not necessarily mean that the Commission sees these practices as falling under the by-effects category: the Commission may simply be conducting a somewhat more extensive analysis of the potential anticompetitive effects of a by-object restriction (an approach that would not be frowned upon at EU level).

A second issue with Frikom I is that the Commission went on to analyze the cumulative effects of Frikom’s unilateral practices. It found that the combination of resale-price maintenance, exclusivity arrangements, and the imposition of dissimilar conditions to equivalent transactions had had the effect of restricting competition on the ice-cream market in Serbia, without analyzing each of the practices separately.

In Frikom II the Commission has a good opportunity to upgrade its analysis of exclusive dealing and loyalty rebates – common practices in the commercial world which are bound to come up again in the case-law.